We can do much better for $500...
CX500 PSU + 500GB HD
HD6850 + Biostar A770E3
Phenom X4 820 AM3 2.8GHZ 95W
Optical drive w/free ship promo
That's ~$450 shipped. You can send in ~$30 worth of MIRs if you want to. The CPU does not come with a heat-sink. Make sure to pick out a heat-sink with a DOWN BLOWING fan (one that blows AT the mobo) to keep the CPU power supplies cool. (something like THIS
The A770E3 is a perfectly fine entry level mobo. You can do some mild over-clocking on it but don't plan on making a 4GHZ quad core powerhouse with it. If you keep all cores enabled, you should probably limit yourself to ~1.45V and ~3.4GHZ as the absolute tops unless you slap some sinks on the mosfets.
The 6850 is roughly 4X the GPU power as a 5670. It's not like a little step up, it's a pretty significant step up, enough to really make a difference. (It's the difference between an unplayable 15FPS and a beautiful smooth 60FPS or more).